On the internal rate of return of IRR and the priority of investments

Manfred Sneps-Sneppe

Abstract

The article is devoted to methods for assessing the effectiveness of investments. Two criteria for measuring the effectiveness of investments were studied: the internal rate of return (IRR) and the discounted total profit (NPV). The advantage of the IRR test before NPV is shown. A new investment priority criterion IPI (Investment Priority Index) is proposed, which is a generalization of the IRR criterion. The application of the IPI criterion in the problems of introducing new technology is shown when taking into account the replaced technology. The work also presents models of calculations with and without inflation.